Sinking Fund Housing Society – Why Society Need It?

It is risky to continue occupation of a building which has run its life. A provision has been made in the byelaws, enabling a co-operative housing society to collect contributions towards a sinking fund from members at a fixed rate per month. The rate fixed under the bye-laws is 1/2 per cent per annum of the cost of construction of a flat, payable in equal monthly instalments, as provided under bye-law No. 67(b)(i) of the bye-laws from the set revised in 1976. A building sinks in course of time due to its wear and tear but the land remains as it is even if the building collapses.

The basis on which the cost of construction of tenanted structures should be fixed: There are some cases which pose problems to societies in adopting the basis for the purpose of fixing the amounts of contributions from members towards the Sinking Fund. There may be societies which have newly constructed buildings as also old tenanted structures, the tenants of which have joined the structures.

There may be some other societies, in which new flats are constructed over the old tenanted structures and tenants thereof have joined the societies. The cost of these old structures is much less than that the cost of construction of the new flats and the contributions from the members of the tenanted structures based on such cost are practically negligible.

A society having a separate old structure on a part of the plot on which a new building is constructed, should ascertain from an architect the future life of the structure and fix the amount of contribution from each member, taking into consideration the cost of reconstruction of a new building thereon, of equal size, if the tenants do not desire new accommodation of large size, at the time when the structure would become due for reconstruction, the area of each flat and the accumulation of the amount of contribution to the sinking fund invested in long term deposit along with interest at the time of starting reconstruction of the structure.

In the latter case, the members of the tenanted structure, on which new flats are constructed have to bear in mind that the reconstruction of the building would include the reconstruction of the structure.

The rate per sq. ft. of reconstruction of the flats is bound to be uniform for all flats. It, therefore, follows that the value of the old structure, for the purpose of fixing the amount of contribution to the sinking fund should be based on the rate per sq. ft. of construction of new flats on the old structure. This would enable the society to build up its sinking fund equal to the cost of reconstruction of the building in course of time.

(ii) Bye-laws’ means by-laws consistent with Act and registered under this Act for the time being in force and includes registered amendments of such bye-laws.

(iii) ‘Chief Promoter’ means the person who is elected by the Promoters, in their first meeting, or in their subsequent meetings in case the post of the Chief Promoter lies vacant, till the first general meeting.

(iv) “Committee” means the Committee of management or board of directors or the governing body or other directing body of a cooperative Housing society, by whatever name called, to which the management of the affairs of a society is entrusted and vested under section 73 of the Act

(v) ‘—– Days’ Clear Notice means the number of calendar days intervening between the day of posting the notice and the day of the meeting.

(vi) Flat’ means a separate and self contained set of premises used or intended to be used for residence, or office, or show-room, or shop, or godown and includes a garage, or dispensary, or consulting room, or clinic, or flour mill, or coaching classes, or palnaghar, beauty parlour, the premises forming part of a building and includes an apartment.

(Vii) ‘Housing Federation’ means the federation of cooperative housing societies, registered and notified under the Act.

Income Tax On Housing Society

The general perception of the Managing Committee of a cooperative housing society is that the income generated by the society is not chargeable to tax and therefore do not bother to file Annual Tax Return. This is a wrong perception since though certain types of income of cooperative housing society are fully exempted there are other incomes which are chargeable to tax.

The society’s income is generated by the following charges:(1) Contribution from Members:
This is the most common charges the society collects from its members to run the day to day affairs of the society. They are credited under different heads namely, maintenance, municipal taxes, electricity, lift maintenance, housekeeping, water charges, repair funds, sinking fund. etc. Any surplus generated due to these types of income is not chargeable to tax as its exempted based on the “Concept of Mutuality”

(2) Interest charged on member outstanding dues:
Interest charged by the society on outstanding dues again forms a part of contribution and qualifies the test of concept of mutuality and is exempted.Continue reading →

TDS for Housing Society

On registration of housing society, the society gets the status of legal entity.
Under the Income Tax Act 1961, a Cooperative Housing Society is taxable entity.
It is mandatory for any legal entities to file TDS return and Income tax returns
thus it is also obligatory to all housing societies to deduct and file TDS Deducted.

What is Tax Deducted at Source (TDS)?

TDS is a certain percentage of payment which is deducted at the time of payment
made to the party, who can be a contractor or professional. TDS is deducted
after considering the amount of payment is made in his favour by the society.
Such deducted payment is paid to the Government account by the society.
The society deducting the tax is called Deductor and the person or company
whose tax is deducted is called Deductee.